Swiss National Bank Outlook

Swiss National Bank monetary policy meeting (Thursday 10) – The SNB will hold its quarterly monetary policy meeting on Thursday 10 and is broadly expected to leave the target range for the three-month Libor unchanged at 0-0.75%, aiming for a three-month Libor of 0.25%. Even though the Swiss economy has performed better than expected in the last few quarters (with 0.3% GDP growth in Q3 and a further increase in leading indicators, the SNB is likely to revise up both its 2009 and 2010 GDP forecasts), we believe that the SNB is highly unlikely to start removing the expansionary monetary policy it has implemented since the crisis erupted in 2007. In particular, we expect the Central Bank to confirm its intention to prevent the Swiss Franc from appreciating further against the Euro. We believe that the SNB will maintain its current exchange rate stance until the economic recovery is well-established both in Switzerland and in the Euro zone. Indeed, the EUR/CHF exchange rate is likely to be a one-way bet for investors until a widespread recovery takes place in the Euro zone, as the Swiss Franc would appreciate due to the high current account surplus. The SNB will likely change its stance on the exchange market either in March or June and should not adjust its target range for the three-month Libor before H2 2010.